Romania A Strategic Choice - Guvernul...

2016, Bucharest

Manuel Costescu – State Secretary, InvestRomania

Romania – A Strategic Choice

22016 The Government of Romania

1. Country overview

2. Macroeconomic overview and outlook

3. Doing business in Romania

3.1 Cost of doing business

3.2 Human Capital

3.3 Government support

4. Life in Romania and key takeaways

Contents

1. Country overview


Romania is one of the most promissing investment destinations in Europe, boasting features that set it apart as a growth opportunity

Area: 238,391 km2

Capital: Bucharest

Currency: LEU (RON)

Population:19,5 mn ppl

S-E Europe

Economic growth in Romania is among the

highest in the EU and is forecast to remain above

potential in 2016 and 2017

EUR

BN

EXPORTS

55

EUR

BN

NOMINAL GDP

160

EUR

BN

NET FDI INFLOW

3

Romania has been a member of EU since 2007

and a member of NATO since 2004

BBB-Stable

BBB-Stable

Baa3-Positive

S & P Moody’s FitchIn 2021, Romania will host the European Capital

of Culture for the second time, after Sibiu in 2007.

Baia Mare, Bucharest, Cluj and Timisoara have

been shortlisted for this role

Romania is ranked 1st in the EU for maximum

speed of internet connectivity and 2nd for high

speed broadband adoption

1

Source: InvestRomania


The country is in the transition 2-3 stage of development with regards to the Global Competitiveness Index 2015 – 2016

Source: World Economic Forum - The Global Competitiveness Report 2015-2016

Romania – Global Competitiveness Index 2015-2016

1


Romania is now more connected than ever, boasting a transport network of 14 international & domestic airports and 8 major ports

International Fligths

Domestic Fligths

Ports

Under construction

SATU MARE

ORADEA

SUCEAVA

TIMISOARA

CRAIOVA

SIBIU

TARGU MURESCLUJ-NAPOCA

BACAU

IASI

BUCURESTI OTOPENI

M. KOGALNICEANU

DROBETA TR. SEVERIN

GIURGIU

MANGALIA

CONSTANTA

SULINATULCEABRAILA

GALATI

BAIA MARE

ARAD

BRASOV

1



130 direct flights can be accessed from 4 Romanian international airports, leading to 76 destinations in 31 countries worldwide

TIMISOARA

17 direct flights

CLUJ-NAPOCA

26 direct flights

IASI

14 direct flights

BUCURESTI OTOPENI

73 direct flights

Alghero

Alicante

Amman

Amsterdam

Athens

Barcelona

Bari

Basel

Beirut

Belgrade

Berlin

Birmingham

Bologna

Brussels

Budapest

Catani

Chisinau

Cluj-Napoca

Copenhagen

Doha

Doncaster

Dortmund

Dubai

Dublin

Düsseldorf

Eindhoven

Florence

Frankfurt

Geneva

Glasgow

Hamburg

Iași

Istanbul

Larnaca

Liverpool

London

Madrid

Málaga

Malmö

Malta

Milan

Moscow

Munich

Naples

Nice

Nuremberg

Oradea

Oslo

Paris

Perugia

Pescara

Pisa

Prague

Rome

Satu Mare

Sibiu

Sofia

Stockholm

Strasbourg

Stuttgart

Suceava

Tel Aviv

Thessaloniki

Timisoara

Turin

Valencia

Venice

Verona

Vienna

Warsaw

Zaragoza

Zürich

Barcelona

Bari

Bologna

Brussels

Bucharest

Dortmund

Eindhoven

Frankfurt

London

Madrid

Memmingen

Milan

Munich

Paris

Rome

Valencia

Venice

Barcelona

Bologna

Brussels

Bucharest

Istanbul

London

Milan

Munich

Paris

Rome

Tel Aviv-Yafo

Turin

Venice

Vienna

Barcelona

Bari

Basel

Bologna

Brussels

Bucharest

Cologne

Dortmund

Dubai

Eindhoven

Geneva

London

Madrid

Malmö

Memmingen

Milan

Munich

Nuremberg

Paris

Rome

Tel Aviv-Yafo

Valencia

Venice

Vienna

Warsaw

Zaragoza

1



70 industrial parks are spread across Romania, most offering capabilities suited for industries like aerospace, IT&C and industry

1

Industrial parks in Romania

1

31 1

1

1

1

1

12

2

513

12

21

12

12

3 9

11

19

1

North West Region: 15 parks

West Region: 4 parks

South West Region: 6 parks

South Region: 22 parks

South East Region: 2 parks

North East Region: 4 parks

Center: 15 parks

Bucharest: 2 parks

• There are 70 industrial parks spread across Romania, placed under both private and public ownership

• All offer access to utilities, particular benefits packages according to their focus and potential for synergies

• Also, investors are exempted from land, building and urban planning taxes as well as for land destination changing

Status at regional level



Technology is becoming a significant part of Romania’s backbone infrastructure, being leveraged by a talented pool of developers

Source: Akamai Technologies; InvestRomania

12.112.412.812.913.914.014.315.215.616.1

ILBERONLCHSE NO DKFI CZ

• The internet infrastructure has developed along with the developers, who are leveraging the network to offer high quality outsourcing services, although the

focus is now shifting towards product design and, consequently, startups

50.951.753.254.257.359.460.962.871.472.1

HU UKRUBECH FISEILRO NL

35.0 48.0 37.0 44.0 33.0 39.0 38.059.0

42.0 53.0

60.0 47.0 57.0 49.0 60.0 53.0 53.031.0

48.0 35.0

FIAU

90.0 88.0

HU

94.0

RO

95.0

IL

95.0 93.0

CH

93.0

DKNL

91.092.0

SE BE

90.0

Share between 4 - 10 MbpsShare above 10 Mbps

1

Top 10 EMEA countries by avg. speed [Q2 2015, Mbps] Top 10 EMEA countries by top speed [Q2 2015, Mbps]

Top 10 EMEA countries by Mbps Broadband adoption [Q2 2015, % > 4 Mbps]

2. Macroeconomic overview & outlook

112016 The Government of Romania Source: AMECO database, European Commission; InvestRomania

2

• Romania is under European Commission surveillance mechanism through Macroeconomic Imbalances Procedure

• Currently, Romania respects all of MIP indicators suggesting a strong position in terms of macroeconomic policies

• Credit rating agencies:

– Moody’s: Updating Romania's Baa3 government ratings from stable to positive (Dec 2015)

– Fitch: Outlook is stable with long-term foreign and local currency IDR at “BBB-” and “BBB” (Jan 2016)

– S&P: Outlook is stable, rating of “BBB-”(Oct 2015)

6 67

-4 -4-5

-1-2-3

45

0 0

-2

20072006 201020082004 20132009 201220112005 2016 201720152014

Potential and real GDP evolution [%]

The output gap is projected to close in the 2nd half of 2016

Current macroeconomic outlook is stable, with positive evolutions expected by some credit rating agencies


-1.9

-0.2

0.9 1 1.1 1.2 1.2 1.3 1.3 1.31.5

1.8 1.92.1

2.6 2.73 3.1

3.5 3.63.8

4

• Growth rate is expected to remain high, close to current potential (4%)

• Current forecasts estimate growth at 4.2% in 2016 and 3.7% in 2017 according European Commission Forecasts for Romania

Source: AMECO database, European Commission; InvestRomania

2

Real GDP growth rate was 3.8% in Q4 of 2015, one of the highest in EU 28, with forecasts maintaining a positive outlook

Real GDP growth [%]

132016 The Government of Romania Source: Eurostat; UNCTAD; InvestRomania

2

Evolution of nominal GDP in Romania 2000 – 2014 [EURbn]

Nominal GDP grew by a total 275% between 2000 and 2014, while FDI stock grew by 971% for the same interval

150144134133127120142

1259880

6153494641

201320122011

+10%

20142007 200920082001 2006200520032000 2002 2004 2010

Nominal GDP

758376706870656245

252012887

2010 201320122011

+18%

201420042002 2007 20082003 200520012000 20092006

FDI stock

Evolution of FDI stock in Romania 2000 – 2014 [USDbn]

CAGR


Romania experienced a recovery of internal demand amid a pro-growth fiscal policy boosting private consumption and investment


2

2012 2014

-0.80

-7.07

20172015

2.96

2013

3.53 4.20

20112010

0.641.06

2008

8.46

2007

3.69

6.86

3.60

2006 2009 20162003

8.06

2.40

2004

8.36

2000 2001 2002 2005

5.595.18

4.175.52

• Domestic demand is set to remain the driver of growth in 2016 and 2017. Private consumption recovered to its post-2008 peak on the

back of higher household disposable income and negative inflation

• Net exports' contribution to growth is projected to remain negative over the next years, as imports growth in line with surging domestic

demand outpaces exports growth

Forecasts

Inventories Public consumptionGFCF Private consumptionNet exports

GDP growth by aggregate demand components [%]


• Fiscal deficit decreased constantly

during 2011 – 2015 amid a strong

fiscal consolidation process

• Starting 2016 it is expected to

increase to 2,8-2,9% of GDP, mainly

due to fiscal measures taken

recently to stimulate economic

growth (standard VAT rate reduction,

SSC reduction in 2014, state aid

schemes and public investment).

• However, Romania stays in the

limits imposed by Maastricht Treaty

regarding both fiscal deficit and

public debt.

• Romania has one of the lower public

debt in EU 28 at the end of Q3 2015:

37,2% of GDP, after Estonia (9,8%),

Luxembourg (21,3%), Bulgaria

(26,9%) and Latvia (36,4%).

-5.4

-3.2

-2.2

-1.4 -1.2

-2.95 -2.89

-2.3

2011 2012 2013 2014 2015 2016 2017 2018

EU28 average: 86% of GDP

0

50

100

150

200

Est

onia

Luxe

mbo

urg

Bul

garia

Latv

ia

Rom

ania

Lith

uani

a

Cze

ch R

epub

lic

Den

mar

k

Sw

eden

Pol

and

Slo

vaki

a

Fin

land

Mal

ta

Net

herla

nds

Ger

man

y

Hun

gary

Slo

veni

a

Aus

tria

Cro

atia

Uni

ted

Kin

gdom

Fra

nce

Spa

in

Irel

and

Bel

gium

Cyp

rus

Por

tuga

l

Italy

Gre

ece

2

Forecasts

Public finances remains solid despite the effects of the financial crisis and the push of external challenges

ESA fiscal balance, Romania [% GDP]

Public debt [2015, Q]



The unemployment rate has been broadly stable below 7% and is expected to decrease somewhat in the coming two years

Source: Eurostat ; InvestRomania

2

6.77.2

8.910.0

15.516.5

4.5

8.7

10.5

9.1

Czech Republic LithuaniaCyprusCroatiaBulgaria PolandLatviaEU28 EA19 Romania

• Unemployment remained broadly stable at 6.7 % in 2015, but is expected to decrease to 6.5 % in 2017

• The low unemployment rate is to be seen in the context of a continuous decline in the working-age population due to ageing

and net outward migration

Unemployment rate [%]


Inflation has been falling recently, plunging to historical lows in 2015 – however the National Bank expects it to return to positive values

2

-0.4

-4

1

6

11

16

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Inflation rate [%]

7.4

2013.4

-30

-20

-10

0

10

20

30

Industry Services Commerce

Business confidence index [%]

• As a large part of EU member states

(Bulgaria, Greece, Slovenia,

Lithuania, Poland, Spain, Croatia

and others) Romania is going

through a period of deflation

• The current situation is mainly owed

to implemented fiscal measures:

– standard VAT rate reduction

to 20% starting with 1

January 2016

– VAT rate cut for food, in

June 2015 to 9% and

• Another reason can be the evolution

of global energy prices

• Inflation is set to return to positive

territory in the second half of 2016

as the impact of the VAT cuts fades

out and the output gap closes

• In the same time, business

confidence is at the highest level in

the last 4 years

Source: Eurostat ; InvestRomania


59.96

2011

51.4153.72

+4%

57.8560.20

2009 2010 20142012

48.80

2013

• 2015 saw a significant increase in FDI

net inflows, with equity financing rising

by approx. 17%

• The FDI stock in greenfield enterprises,

in amount of EUR 32,527 million, holds

54% of total FDI stock

• Equity (including reinvested earnings) of

FDI enterprises amounted to EUR

43,243 million (71.8 percent of the final

FDI stock) at end-2014

• Total net credit taken by direct

investment enterprises from foreign

direct investors, intercompany lending

included, reached EUR 16,955 million,

i.e. 28.2% of the final FDI stock

Source: National Bank of Romania; InvestRomania

FDI stock [EURbn]

At the end of 2014, final FDI stock came in at EUR 60,2 billion, while FDI net inflows saw a 25% increase at the end of 2015

2

1.83 1.512.43

1.662.85

3.34

-0.43

0.83

0.43

-0.31

2012 20152014

2.42

2011

0.20

1.70

3.04

2013

2.46

0.03

+6%

2010

2.262.49

FDI net inflows [EURbn]

Credit

Equity

CAGR


Manufacturing, financial services and trade account for approx. 56% of FDI stock existing in Romania, followed by utilities and real estate

2

5,1%

6,0%

2,5%5,6%

1,7%

9,8%

11,1%

11,7%

13,0%

32,0%0,9%

0,6%

Extractive industry

Prof., scientific, tech. and admin.

Agribusiness

Transportation

IT&C

Real estate

Financial services

Manufacturing

Trade

Utilities

Other

HoReCa

Spread of FDI stock among different sectors [%, 2014]

• The computer & electronics manufacturing sector as well as utilities are

registering the highest FDI growth rates

• IT&C, while not growing at the same acceleration, is becoming a focus

sector with strong connections to international markets

1,251,050,84

2011

1,06

2010 2012

1,43

2013

+14%

2014

Computer & electronics FDI [EURbn]

Utilities FDI (EUR billion)

2014

+15%

2011

3,876,64

2012

4,36

20132010

6,705,72

IT&C FDI [EURbn]

20142012

+4%

2,85

2011

4,132,97

2010

3,08 3,60

2013

CAGR



• Most of the local FDI stock is owned by companies originating from Western and Central Europe, led by the Netherlands, Austria,

Germany, France and Italy

• The US is being responsible for only 1.8% of FDI stock in Romania

• However the presence of companies of American and transcontinental origin is significant in Romania, due to investments executed

through European based proxies due to fiscal reasons

10,5%

1,8%

87,7%

OthersUSAEurope

A large majority of FDI stock in Romania is of European origin, with Western Europe (NL, AT, DE) in the lead with EUR 31 billion (52%)

Global spread of FDI stock in Romania [%]

2

4,1%

18,4%27,0%

14,2%

7,8%

5,3%8,1%

15,3%

Cyprus

Switzerland

Austria

Netherlands Germany

France

Italy

Others

European spread of FDI stock in Romania [%]



3,20

Jan.

2012

Jan.

2011

Jan.

2013

4,52

3,70

Jan.

2010

Jan.

2009

4,23 +12,7%

Feb.

2016

-1,5%

Jan.

2015

4,48

Jan.

2014

4,04

RON/EUR RON/USD

Exports have performed well in the past 8 years, growing with a CAGR of 8.6% per year – the stability of the FX rate also helped

FX rate evolution for RON / EUR and RON / USD

2

• For most of the analyzed period, the RON/ EUR exchange rate has been relatively stable, allowing for an acceleration of

• The US is being responsible for only 1.8% of FDI stock in Romania

5350

4545

37

2934

30

2007 201320122011201020092008

+8,6%

2014

Evolution of exports [EURbn]

CAGR



• According to the National Bank of

Romania, foreign owned firms

accounted for 71 % of total exports

and 65% of total imports of goods in

2014

• Foreign owned enterprises have also

contributed approximately 51% to the

exports and imports of services, with

companies in the manufacturing

sector contributing the most

• The most impressive sector is by far

machinery and transport equipment,

which has grown by 23.3 percentage

points since 2000

• The next most significant sector as

share of exports is represented by

other manufactured goods, followed

at a large distance by chemicals and

related products

Source: Eurostat, National Bank of Romania; InvestRomania

Spread of exports by goods [%, 2000 – 2014]

Romania has seen a 8.6% increase per year in exports, with the most impressive growth occurring in machinery and equipment

42.3%

18.9%

31.6%

55.7%

9.2%

5.8% 8.5%

5.4%

2014

5.2%

2.6%

6.4%

2000

0.5%

7.2%

0.6%

+ 23.3 p.p.

Food, drinks and tobacco

Chemicals and related products, n.e.s.

Commodities and transactions not classified SITC Raw materials

Mineral fuels, lubricants and related materials

Other manufactured goods

Machinery and transport equipment

2

3. Doing business in Romania


RO

UKR

MD

BG

SRB

HU

37Ahead of Bulgaria,

Croatia, Hungary,

Italy, Turkey, Serbia or

Greece

Source: World Banks, Doing Business Report 2016

World Bank ease of doing business rank

1Low gas prices and 5th

lowest electricity in

Europe

EU gas prices rank

2Romania has a very

competitive labor

force in the EU

EU labor costs rank

Historically, investing in Romania has never been easier, with the government becoming a partner for businesses and entrepreneurs

1Romania’s maximum

broadband ranks first

in the EU

Maximum broadband speed

3

3.1 Cost of doing business


Romania has some of the lowest energy prices in the EU

3.1

Source: Eurostat

Electricity prices in the EU [EUR / 1000 kWh, 2015]

616264687171727376767678818283848790919499104108112129132

144156

ROSI DKSEFIBGNLLTPL DEBE ATHRLVIT EEHULU FRCZCY ESUK IE SK PTELMT

Medium sized industry - electricity prices

6888888999999991010101010101010111111

NLBELTCZ DK ROPL ATSIIT BG FILVSKUKEEFRHUELLU SEIEESHRPT DE

Medium sized industry - gas prices

Gas prices in the EU [EUR / gigajoule, 2015]


Romanian labor costs are some of the lowest in the EU, maintaining a competitive position relative to member states

3.1

National minimum wages in the EU [EUR/ month, 2016]*

PLEE

12131516

SLCY

16

RO

5

HUHR

10

GR PTES

21

MT LT

7

LV BG

689

CZ

9

SK

104

7

31

ATNL

36

SE UKDK

4034

30

LU DE

32

BE

3935

32

FR FI

37

28

IE

22

IT

Estimated average hourly labor costs [EUR/ h, 2014]**

1,923

1,5461,5291,5081,5021,4731,467

791764728684618431430408405370366353350

233215

ROBG LT LUIEUKMTGRPTPL DE BEFR NLSLESHRSK EELVHU CZ

National minimum wage

* Denmark, Italy, Cyprus, Austria and Finland have not implemented a national minimum wage; ** Enterprises with 10 or more employees

Other labor costs Wages and salaries

Source: Eurostat


Social Security

With the local taxes already low compared to European peers, the government plans future tax cuts through the new fiscal code

VAT

Individual Tax Rate Corporate Tax Rate

3.1

EmployerEmployee

16%

• The government is committed to

reducing the tax burden – 2016

marked the drop in VAT to 20%,

which will be followed by

another drop to 19% in 2017

• VAT on food products is 9%

• The individual tax rate does not

have any planned cuts for the

near future

• However, the new fiscal code

planned a reduction of the

dividend tax from 16% to 5%

• The government’s

commitment to lower the

tax burden covers the

corporate tax rate as well,

with a reduction to 14%

planned for 2019

Tax System of Romania


Overview of the Romanian tax system

16%

20%

16%

23%


The taxes are some of the lowest in the EU, with planned policies aiming to reduce them even further in the favor of businesses (1)

3.1

Source: KPMG

VAT in the EU [2015, %]

171819192020202020202021212121212122222323232324252527 25

FREEATLV BGLT UKRO DECY MTSK LUES NLFISEHRDKHU ITPLIE SIPT BE CZGR

10131315151617191919202020202122222425252829293031333435

LTRO LV IE BGCYSIDK UKEEHRSKSEATNLESGR HULU PL CZFIPTFR ITBEMT DE

Corporate tax rate in the EU [2015, %]

10151616202223253235354042434445454547484850505052525557

SE DK PTSIBENLFI AT FRESIE DE UK ITLU LTHUEECZCY BGLV ROSKPLHR MTGR

Individual tax rate in the EU [2015, %]


The taxes are some of the lowest in the EU, with planned policies aiming to reduce them even further in the favor of businesses (2)

3.1

Employee social security in the EU [2015, %]

0224

678810101011111112131313141616

181819202022

28

CZLUHU GRSI BG PTSKPLFRATDENL BEROHR LV EESE UK DKIEESLTMTIT FI CY

Employer social security in the EU [2015, %]

0

1011121415161718181921222323242425293030313134343535

45

DKMTIEAT SIBGFI NLDE CYRO LUPL UKGRHU HRLVPTEEBE LTSEFR ESCZSK IT

Source: KPMG


Number of payments required to cover tax costs per year


8891014

999911

2829

20082006 20142004 20122010 20162007 2009 2011 2013 20152005

11-21

1414

3941

113113113113108108108

20142013 20152009 2010 20122008 201620112006 2007

-99

3.1

The government is showing more and more support to the private sector, implementing pro-growth policies to support entrepreneurs (1)

Number of days required to start a business in Romania

• From a tax perspective, the number of

payments/ year required to fulfil fiscal

obligations has dropped dramatically, from

113 in 2012 (historic maximum) to just 14

in 2016

• Coupled with a tax system that is one of

the most friendly in the EU, a more

accessible tax system is the next step for

growth

• In order to support entrepreneurs, the

Romanian government has also simplified

the process of opening up a business,

reducing the necessary time from 29 days

in 2004 to a little over a week in 2016

• For the short, medium and long term, the

government is committed to aiding

emerging entrepreneurs


0.60.70.70.80.80.90.91.11.51.6

1.92.2

2.9

20152014 2016201320122007 2009200820052004 20102006 2011

- 2.3 p.p.

2.02.12.42.83.02.62.83.54.54.45.3

7.4

10.9

2007 200920082005 2006 20102004 20152014201320122011 2016

- 8.9 p.p.

3.1

The government is showing more and more support to the private sector, implementing pro-growth policies to support entrepreneurs (2)

Paid-in minimum capital [% of income per capita]

Cost to start a business [% of income per capita] • Overall, the cost to start a business in

Romania has decreased by about 9

percentage points every year since 2004,

reaching 2% in 2016, the lowest recorded

value

• The pro-growth policy is still being

implemented, with further tax cuts and aids

being developed by the government

• The pro-growth policy has further

implications in the Romanian business

environment, with the necessary paid-in

minimum capital decreasing by 2.3

percentage points since 2004, reaching a

minimum historical value of 0.6% of

income per capita


3.2 Human capital


Enrolment in professional education has risen constantly, which translates to a shorter transit from the classroom to the workplace

2014

98

49

81

129+19%

156

2013

95

26

1138

7

1892

2012

73

10

2

72

86

1

2011

Vocational schoolsSpecial post-secondary schools Scoli postlicealeForemen SchoolsSpecial post-secondary schools – Cycle 2

3.2

Students enrolled in professional schools in Romania [‘000]

Source: NIS, Eurostat, InvestRomania


Over a 25% of graduating students will have a technical degree, followed by approx. another quarter in business and economics

Percentage of university graduates by subject of degree [2014]• The quality of education in Romania is

recognized internationally, local students

consistently ranking in the top 10 in

International Olympiad competitions in math

and informatics, better than any other

country in the EU

• The focus on technical subjects is

significant, with the number of engineers/

capita – higher than the US, India, China or

Russia

• With 5 polytechnic universities, 59 domain

specific universities and 174 private

colleges, the most successful students tend

to pick high tech industries, such as IT – the

local education system supplies over 7,000

IT&C engineers every year

• 99% of Romanian students learn two or

more languages in upper secondary

education

10%

23%

11%28%

2%

26%

433

112 134

8

80 5743

Number of students by subject of degree [‘000, 2014]

3.2

* Includes: mathematics, physics, biology, chemistry, geography, journalism, history, political and administrative science, philosophy

Economics

Science and humanities

Medical

Arts

Technical

Law

Source: NIS, Eurostat, InvestRomania


There are 7,000 IT&C grads in Romania every year, adding to a total of 90,000 with forecasts exceeding the 100,000 mark by 2018

Source: IEEE; Brainspotting; ANIS; ARIES; ZDNet; InvestRomania

1

HIGH

QUALITY

3

COST

EFFECTIVE

2

AVAILABLE

CODING IN

ROMANIA

1High quality – top 10 worlwide at math and computer

science international olympiads

• Romania consistently ranks in the top 10 in International

Olympiad competitions in math and informatics, better than

any other country in the EU

• Romanian universities have been in the top 3 of the IEEE

Design Competition every year since 2001

2Available – number of engineers/ capita higher than the US,

India, China or Russia

• There are 5 polytechnic universities in Romania, which

together with 59 domain specific universities and 174 private

colleges supply over 7,000 IT&C engineers every year

3 Cost effective – value for money is much higher than in

Western Europe or the US

• Avg. annual salary for a software developer working in

Romania is EUR 17,000, with the low living costs implying a

standard of living better than even London

3.2


9 out of 10 university students are proficient in English, as a result of the fact that almost all students study 2 languages in high school

Source: ABSL, NIS, Eurostat, InvestRomania

Languages studied by Romanian students [2014]

3.2

97%• 97% of Romanian high school students study 2 or more foreign languages while in secondary education

• The predominant languages are English, French, German and Spanish, yet initiatives for teaching Japanese, Nordic

languages or the entire Latin language family (Spanish, Italian, French) exist

University students in Romania are proficient in [% of total]:

90% 26% 17% 8% 5%


The top university centers in Romania are Bucharest, Cluj – Napocaand Iasi, followed by Timisoara, Sibiu, Brasov and Constanta

Bucharest - 33 UniversitiesCluj - 10 UniversitiesIasi - 10 Universities

CJ

10

B

29

SB

3

AR

3

BVDJ

4

CT

5 49 6

TMIS

Number of graduates by University Center [‘000]

Sources: NIS, World Economic Forum, InvestRomania

3.2

= City 50,000 – 100,000 inhabitants

= City >100,000 inhabitants

Arad

Bacau

Baia Mare

Botosani

BrailaBrasov

Bucuresti

Buzau

Cluj-Napoca

Constanta

Craiova

Drobeta-Turnu Severin

Focsani Galati

Oradea

Piatra Neamt

Pitesti

PloiestiRamnicu Valcea

Satu Mare

Sibiu

Suceava

Targu Mures

Timisoara

Alba Iulia

Birlad

Bistrita

Calarasi

Deva

Giurgiu

Hunedoara

MediasOnesti

Resita

Roman

Sfantul Gheorghe

Slatina

SloboziaTargovisteTargu Jiu

Tulcea

Turda

VasluiZalau

Iasi

Human Capital Index 2015 - Rank 39Upper-middle income Country - Rank 3

Age group rankings

Human Capital Index

Top 3 University Centers

15 – 24Rank 45

25 – 54Rank 36

55 – 64Rank 29

3.3 Government support


Fiscal incentives are aimed at leveraging the local technology and R&D capabilities by incentivizing investors and employers (1/2)

• 16% profit tax exemption for the reinvested profit in new technological equipment used for business purposes

• Eligible R&D expenses include: depreciation of R&D equipment, salaries for R&D personnel

• 50% of these expenses can be deducted from the taxable income

• A deduction of 50% from the fiscal value of the assets during the first year of use, while the remaining value may be depreciated linearly along the expected remaining lifespan

• Accelerated depreciation can be used also for equipment and/ or for research and development activities

• If a company benefits from exemption of the income tax for reinvestment it will not benefit from accelerated depreciation

Fiscal incentive Short description

Exemption from

profit tax

Income tax exemption for IT&C employees

Deduction of R&D eligible

expenses

Accelerated depreciation of machinery, equipment and real estate used for R&D purposes

• An exemption on the 16% income tax is available in Romania for employees activating in IT, under conditions including:o Bachelor’s degree in one of the 14 technical specializations availableo Employee is hired on a software engineer/ programmer/ software analyst

positiono Annual revenue per exempted employee must be over USD 10 000

Sources: Ministry of Public Finance, InvestRomania

FISCAL INCENTIVES3.3


Fiscal incentives are aimed at leveraging the local technology and R&D capabilities by incentivizing investors and employers (2/2)

• Income received by people with serious disabilities can benefit from income tax exemption (e.g., for salary income, income from freelancing activities)

• Investors that set up manufacturing locations or offices in an industrial, scientific or technological park benefit from o Exemption on land, building and urban planning tax o Taxes charged for changing land destination

• International income derived by Romanian residents is tax exempted under the following conditions:o There is a valid tax treaty between Romania and the relevant jurisdiction

(from where the income is derived by the Romanian resident) o The interested party (taxpayer) can demonstrate that income tax was paid

abroad on the respective incomeo The tax credit cannot exceed the Romanian tax applicable for the respective

income

Fiscal incentive Short description

Foreign tax credit

Facilities for people with

serious disabilities

Industrial parks

incentives


FISCAL INCENTIVES3.3


In a competitive market employment incentives are designed to maximize productivity of the available human resource

For both types of incentives the employers will have to take into

consideration that they have to maintain working relations for 18 months.

In case of termination the employment contract before this period, the

employer will return the incentive if the contract was terminated in the

following conditions:

• Termination of the employment contract due to cancellation of

the employees position in the company for reasons which are

not related to the employee;

• In case the employee does not correspond professionally to the

job he has been assigned;

• Nullity of the employment contract observed by the parties

agreement or by a court decision; In case that job is occupied

again by a person that was illegally fired.

Hiring young graduates for

undetermined periods.

The incentives are granted to the

employer on a monthly basis for a

period of one year.

Hiring unemployed individuals with

the age over 45 (for an undetermined

period).

The incentives are granted to the

employer on a monthly basis for a

period of one year.

Employment incentives

EMPLOYMENT INCENTIVES


3.3


State aid in Romania can be executed through 4 main methods, each being employed by various state aid schemes

• State Resources transfer

– Grants

– Fiscal benefits

– Guarantees

• Selectivity

– Oil reserves (with 600 million barrels)

– Export growth rate of R&D services

– Energy independence

• Effect upon market competitiveness and trade

– If EU law is obeyed, the skewing effect is drastically

reduced, according to the Competition Council

• Economic Advantage

– Renting or buying property from the state under the

market price

– Subsidies for salary costs

– Access to infrastructure tax-free

State Aid policy in Romania has been developed according to EU Law in order to facilitate

and stimulate foreign investment in the country

STATE AID


3.3


With a budget of EURm 600 for the next 6 years, the two schemes for regional state aid aim to support value adding investments

• The two schemes offer state aid in the form of non reimbursable grants from the state budget, caped by the limit of maxim intensity

approved according to the regional map

Aim• To support minimum investments valued at

EUR 10 million

• The creation of at least 10 jobs per

location, out of which 3 jobs are for

unfavored workers

Eligible Costs

• Construction of new buildings

• Renting costs for existing buildings

• CAPEX aimed at technical installations

and tools

• Acquisition of intellectual property

• Salary costs registered for a 2 consecutive

year period resulted as a direct

consequence of the investment

• Salary costs are comprised of gross

annual salary plus benefits

Budget • Total budget for the two schemes is EUR 600 million, with annual investments projected at EUR 100 million

Payout • 2015 – 2023 • 2015 – 2025

GD 2014/ 807 GD 2014/ 332


STATE AID3.3


Eligibility criteria for companies concern their financial health and their capacity to see the investment project through

Eligibility Criteria for Companies (separate)

Eligibility Criteria for Companies (common)

• In the case of GD 2014/ 807, payout occurs after all or part of the eligible expenses have been covered

• In the case of GD 2014/ 332, payout occurs on a quarterly basis, after all or part of eligible expenses have been covered

GD 2014/ 807

• Net profitability for existing companies:

> 0%

• Equity for new companies: >= RON

100,000

• Net profitability for existing companies:

>1%

• Equity for new companies: >= RON

30,000

GD 2014/ 332

• Are registered according to company law no. 1990/31

• Execute an investment in one of the eligible sectors

• Do not have outstanding debt from the general consolidated budget

• Are not registered as enterprises in difficulty or are not debtors in an enforcement or insolvency

proceeding, nor are they suspended from activity

• Are not part in a state aid recovery proceeding

• Have not benefited from regional state aid for eligible costs in the same investment project

• Have not closed a similar or even identical enterprise in the European economic area in the past two

years and do not plan to do so for the next 2 years after the execution of the initial investment


STATE AID3.3


There are also eligibility criteria pertaining to the project itself, such as its value and viability over the short, medium and long term

Eligibility Criteria for Investments (separate)

Eligibility Criteria for Investments (common)

• Minimum value: EUR 10 million

• To be viable and determine the operational

efficiency of the company

• To prove the stimulating effect of state aid

• To generate contributions to regional

development

• To facilitate extra investment in the region

• To lead to the creation of 10 new jobs per

investment location, out of which 3

positions to be covered by unfavored

workers

• To be viable and determine the operational

efficiency of the company

• To be considered initial investments

• In the case of large companies in the Bucharest region, investments must also develop new economic

activities within the local ecosystem

GD 2014/ 807 GD 2014/ 332


STATE AID3.3


The intensity of state aid varies according to the region, varying from 15% (in Bucharest) to 50% in most of the country

North-West

50%

West

35%

North-East

50%

Center

50%

South-East

50%

South-West

50% South

50% 15%

35%

State aid intensity, according to development region:• North West – 50%

• North East – 50%

• South East – 50%

• South – 50%

• South West – 50%

• West – 35%

• Ilfov County – 35%

• Bucharest – 15%

• State aid intensity is established as per EU and national regulations and is subject to change according to EU law on the matter• Development regions of Romania represent a split of counties into larger regions in order to technically better target development programs and policies


STATE AID3.3


European Structural and Investment Funds (ESIF) offer support for risk averse investors targeting low volatility sectors

• ESIF will be provided through 5 programs– European Agricultural Fund for Rural

Development (EAFRD)– European Maritime and Fisheries Fund

(EMFF)15– European Regional Development Fund (ERDF)– European Social Fund (ESF)– Cohesion Fund (CF)

• More than €1 billion allocated to R&D and innovation

(TO1), supporting the national target of 2% of GDP

invested in R&D (against 0.49% in 2012)

• €3.9 billion to be invested to support the shift to low

carbon economy

• €22.4 billion for Cohesion Policy (ERDF, ESF, Cohesion

Fund)

• Cohesion policy will be delivered by 8 operational

programs

14%

2%

22%1%

26%

1%

4%

8%

23%

ESF+YEI EARDF EMFFERDF CF ERDF CompESF ERDF REGERDF TA

In total more than €30 billion in funding will be provided

during the 2014-2020 Partnership Agreement

Budget distribution on programs [%]

Sources: European Commission, EIB, InvestRomania

EU NON-REFUNDABLE STRUCTURAL FUNDS3.3


The Investment Plan for Europe (Juncker Plan) can be a very effective financing tool for riskier projects through the EFSI*

POLICYSECTORS COMPANIES

• The EFSI will target specific

sectors, including:

– Infrastructure

– Education

– Research

– Innovation

– Renewable energy

– Energy efficiency

• The companies targeted by the EFSI for

investment must fall into one of the

following two categories:

– Small and medium enterprises

(250 employees maximum)

– Mid-caps (250 to 3000

employees)

• Companies will also have to

facilitate the following objectives:

– Promote job creation

– Long term growth

– Competitiveness

• Besides the three filters, the criteria on which investment decisions are based include:

– Economic viability with the support of the initiative

– Sufficiently mature character in order for the business to be appraised on a global or local basis

– Consistency with EU policy priorities and value adding character at European level

– Maximization of private sector financing

• Projects do not have to be cross border

3.3

EFSI investment thesis outline


* EFSI = European Fund for Strategic Investment is a EUR 21 billion guarantee fund and core of the Investment Plan for Europe dedicated to facilitating private

investment across the EU

INVESTMENT PLAN FOR EUROPE – LOANS


However, it is not only companies that can apply for EFSI financing; investment funds, public sector entities or banks are also welcome

Public Sector Entities (except Member States themselves)

SMEs (up to 250 employees)

Mid-caps (up to 3000 employees)

Large entities such as• Utilities• Special purpose vehicles• Project companies Banks to deliver intermediated lending (incl.

National Promotional Banks)

Investment funds

Bespoke Investment Platforms

• There are two main ways to apply for ESFI financing:– Through direct contact of the EIB with the proposal, following the usual application on the EIB website for the strategic investment

window – the government is not a gatekeeper in this process– Through the EIF financial intermediaries (dedicated to SMEs and mid-caps)

EFSI

Entities that can apply for EFSI financing

3.3 INVESTMENT PLAN FOR EUROPE – LOANS


4. Life in Romania and key takeaways


More than 10 nationalities have developed expat communities in Romania, particularly in its large urban centers (Bucharest, Cluj)

4

Expats networks in Romania by home country and main originating cities

Sources: InterNations, InvestRomania

• Toronto• Vancouver• Montreal• Ottawa

• London• Birmingham• Glasgow• Liverpool

• Rome• Milan• Turin• Genoa

• New Delhi• Mumbai• Kolkata• Bangalore

• Warsaw• Katowice• Krakow• Lodz

• New York• Chicago• Houston• Los Angeles

• Berlin• Hamburg• Munich• Cologne

• Paris• Marseille• Lyon• Lille

• Madrid• Barcelona• Valencia• Seville

• Amsterdam• Rotterdam• The Hague


Life in Romania is good: the culture, the people and the places make it rich in great experiences for expats

4

In Bucharest, you need a monthly salary of…

Sources: Numbeo, InvestRomania

46 580 Czech Koruna

7 381 Zlotys

1 700 Euro

1 365 Pounds

1 738 Euro

1 714 Euro

538 500 Forints

… to maintain the same standard of living from…

Prague

Warsaw

Vienna

London

Paris

Berlin

Budapest

57 000 Czech Koruna

8 800 Zlotys

3 300 Euro

4 500 Pounds

4 400 Euro

3 100 Euro

610 000 Forints

… with a salary of:


Compared with other EU capital cities, the standard of living in Romania is high considering the differences in living costs

Consumer Prices

BUCHAREST vs. BERLIN BUCHAREST vs. LONDON

Rent Prices

Restaurant Prices

Groceries Prices

• 41% lower in Bucharest • 57% lower in Bucharest




Standard of living equivalency

(EUR 1,700 net salary in Bucharest)

• EUR 3,100 net salary in

Berlin ensures the same

standard of living

• EUR 5,707 net salary in

London ensures the same

standard of living

4

Sources: Numbeo, InvestRomania


Romania – a stable business climate, great investment opportunities, competitive workforce and outstanding lifestyle options

2016

Investing in Romania

An important domestic market and

stable/safe country

A competitive tax policy and state

support for businesses

Talented and skilled workforce

High life standards, great lifestyle

and rich personal experience

Potential market of over 20 million consumers

One of the most dynamic economies in Central and Eastern Europe

More than 10 nationalities have developed expat communities

High living standards and lifestyle

Rich experiences for expats

Few cultural and linguistic barriers

University graduates are flexible, innovative and future-oriented

One single corporate tax level of 16%

43 billion EUR European funds assigned before the end of 2020

Tax exemption for reinvested profit

Sources: InvestRomania

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